Purchase Solution

IRR and NPV

Not what you're looking for?

Ask Custom Question

2. A firm is considering investing $10 million in equipment that is expected to have a useful life of four years and is expected to reduce the firm's labor costs by $4 million per year. Assume the firm pays a 40% tax rate on accounting profits and uses the straight-line depreciation method. What is the after-tax cash flow from the investment in years 1 through 4? If the firm's hurdle rate for this investment is 15% per year, is it worth while? What are the investment's IRR and NPV?

Purchase this Solution
Solution Summary

Calculates IRR and NPV of investment.

Solution Preview

2. A firm is considering investing $10 million in equipment that is expected to have a useful life of four years and is expected to reduce the firm's labor costs by $4 million per year. Assume the firm pays a 40% tax rate on accounting profits and uses the straight-line depreciation method. What is the after-tax cash flow from the investment in years 1 through 4? If the firm's hurdle rate for this investment is 15% per year, is it worth while? What are the investment's IRR and NPV?

After tax cash flow

Depreciation (sttraight line)= $2,500,000 =(10,000,0000 ...

Purchase this Solution
Free BrainMass Quizzes
Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

View More Free Quizzes
Related BrainMass Solutions

  • IRR method and NPV method

    494820 IRR method and NPV method Whats the difference between the internal rate of return in (IRR) method and the net present value (NPV) method? What is the IRR method and NPV method?

  • NPV, IRR, Profitability Index, and MIRR

    407811 NPV IRR Calculations Please view attachment for question. a. Calculate the NPV, IRR, Profitability Index, and MIRR for this project with a cost of capital of 12%.

  • NPV and IRR Example

    109658 NPV and IRR Example NPV Example ? Pharmaceutical plant costs $50MM today ? Net cash flows: (no benefit until year 2) - Year 2: $9MM - Year 3: $10MM - Year 4: $11MM ? Assume a no-growth perpetuity after Year 4 ?

  • NPV IRR conflict

    (a) When can the NPV and the IRR methods of evaluating investment projects provide contradictory results? Both NPV and IRR are investment appraisal methods and at times these methods can provide contradictory results.

  • ABC Widgets

    This solution is comprised of a detailed explanation to find NPV and IRR for two projects.

  • NPV

    for IRR is a trial and error procedure.

  • NPV, IRR and Profitability Index

    217545 Calculate the NPV, IRR and Profitability Index for the cash flows listed below using a discount rate of 10%: (show your calculations) Calculate the NPV, IRR and Profitability Index for the cash flows listed below using a discount rate of 10%:

  • Calculating Net Present Value

    the theory and the above equation, if NPV>0, then, IRR>K Conclusion: It is true.

  • Ranking conflicts between NPV and IRR,

    178254 Ranking conflicts between NPV and IRR, What is the underlying cause of ranking conflicts between NPV and IRR? Why do you get a conflict in rankings with IRR and NPV?

  • NPV and IRR

    ) 0.877625 -27,382 =-31200*0.877625 2 ($49,100) 0.770226 -37,818 =-49100*0.770226 IRR= 13.94% NPV= 0 Answer IRR = 13.94% IRR can also be calculated through interpolation Find NPV at two rates and interpolate

View More Related Solutions